ABC Hotels is a major hotel chain of India. The company operates 35 hotels of which 14 are owned by it and the rest are owned by others but managed by ABC. ABC’s principal strategy has been to serve the high end of the international and leisure travel markets in major metropolises, secondary cities and tourist destinations. It plans to continue to develop new businesses and leisure hotels to take advantage of the increasing demand which is emanating from the larger flow of commercial and tourist traffic of foreign as well as domestic travelers. ABC’s operating revenues and expenses for the year just concluded (year 0) were as follows: Operating Revenues Room rent Food and beverages Management fees for managed properties Operating Expenses Materials Personnel Upkeep and service Sales and general administration 258 258 350 350 Rs (in millions) 1043 678 73

ABC’s assets and liabilities (in million rupees) at the end of year 0 were as follows: Owners’ Equity and Liabilities Net worth Debt 1126 900 Assets Net Fixed Assets Gross Block: 2110 1510

Acc.Depreciation 600 Net Current Assets Total 2026 516 2026

ABC had no non operating assets. At the beginning of year 0, ABC owned 2190 rooms. It has planned the following additions for the next four years. The land needed by the company for these additions has been already acquired.

The post tax cost of debt is 9%. sales and general administration expenses will be respectively 15. The risk free rate is 12% and the market risk premium is 8%. The room rent from managed properties will be more or less equal to the room rent from owned properties. 210. Thereafter it will increase by 1% per year for the next six years. 140. The market value of equity of ABC hotels at the end of year 0 is Rs 3050 million. The depreciation for the years is as follows: (120. 15. The average room rent per day will be Rs 2500 for year 1. The management fees for the managed properties will be 7% of room rent. personnel expenses. The market value of debt is Rs. The free cash flow is expected to grow at a rate of 10% per annum after 7 years. Compute the total value of the firm and value of equity. 293.921. 166. 329) Tax rate will be 20%. 900 million. ABC stock has a beta of 0. Material expenses. It is expected to increase at the rate of 15% per year for the next 7 years. . 132. The occupancy rate will be 60% for year 1. Working capital is expected to be 30% of the revenues.Year 1 2 3 4 5 6 7 Rooms 90 130 80 130 186 355 150 Investment (Capex) (in million rupees) 200 300 240 500 800 1400 1300 A good portion of investment in year 7 would be towards purchase of land. Food and beverages revenues are expected to be 65% of the room rent. 18 and 18% of revenues (excluding management fees). upkeep and service.

10.000.10 each par aggregating to Rs. 2750000 Received through underwriter Y Rs. The issue has been closed and the following is the information available on the subscriptions. Valid subscriptions received Rs 7650000 Received through underwriter X Rs. .000 each.ABC makes an issue of 1000000 shares of Rs.000. 1420000 Examine the underwriters devolvement. The issue has been underwritten fully by two underwriters X and Y to the extent of Rs. 3480000 Direct subscriptions received Rs. 5000.

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